Toshiba, which invented NAND flash memory in the late 1980s that has been used in virtually all servers, smartphones, laptops and tablet PCs for years, said Sept. 20 that it is selling that prize business to a group led by Bain Capital and South Korean chipmaker SK Hynix for $18 billion.
Reuters reported that under the proposed transaction, Bain and SK Hynix also have brought in U.S. tech firms Apple and Dell, high-volume buyers of Toshiba chips, to help support the offer.
The Japan-based conglomerate is forced to unload the thriving business unit to fill a major hole in its finances caused by the bankruptcy of its U.S. nuclear unit, Westinghouse. Without the sale, the company may have been dropped from the stock markets.
There was a key business move back in January that portended the Sept. 20 news. On Jan. 27, Toshiba revealed that its flash memory business would be spun off into another business entity so that it would have "more operational flexibility and stronger fundraising ability."
A Warning Sign Last December
Back in December 2016, Toshiba warned investors that it was preparing to write off several billion U.S. dollars because of out-of-control expenses at its American nuclear subsidiary, Westinghouse. This followed Toshiba's admission in 2015 that it had inflated its earnings by $1.2 billion over seven years—a scandal that company investigators connected in part to Westinghouse nuclear-project managers, who they said had disguised faltering revenues and cost overruns, The New York Times reported at the time.
Toshiba said Sept. 20 it had entered into a non-binding memorandum of understanding with Bain Capital Private Equity to negotiate a "mutually satisfactory definitive agreement" for the sale of the chip business by the end of the September.
The chipmaker said it had been negotiating with three potential groups to sell its memory business. One consortium included Bain Capital, the Innovation Network Corporation of Japan and the Development Bank of Japan. Another included competitor Western Digital, and a third involved iPhone assembler Hon Hai Precision Industry.
Analysts have said the sale of the memory business could be key to turning around Toshiba's overall business.
Company Owns Substantial Piece of the Flash Market
Currently, Toshiba and Western Digital together represent 35 percent of the global NAND flash output, according to DRAMeXchange. The leading supplier, Samsung, is at 36 percent, while the Micron-Intel partnership and SK Hynix account for 17 percent and 12 percent, respectively.
Toshiba's memory sales roughly comprise around 15 percent of the company's total revenue. However, up to 50 percent of the company's operating margin for the period also came from the same source. This means that memory has become the main profit driver for Toshiba.